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UPDATE 3-Mulberry sees rocky road ahead as it reverts to lower-priced handbags
April 17, 2014 / 6:31 AM / in 4 years

UPDATE 3-Mulberry sees rocky road ahead as it reverts to lower-priced handbags

* British luxury brand to drop strategy of moving upmarket

* 2014 profit to be 26 pct below forecasts

* Sees strategy change weighing on profit for two years (Writes through, adds Chairman comments, new details)

By Kate Holton and Neil Maidment

LONDON, April 17 (Reuters) - Britain’s Mulberry could take up to two years to return to profit growth after deciding to scrap an unpopular push into higher-priced handbags and return to more affordable luxury, its acting head said on Thursday.

Mulberry’s push to swap its “affordable luxury” tag for a more exclusive position was led by Bruno Guillon, ousted as chief executive in March after the strategy was undone by its core shoppers turning to cheaper affordable luxury rivals such as Michael Kors.

After a review, the firm said it would now sell more bags at cheaper prices as it warned investors on 2013-14 profit for the second time in three months, pencilling in a pretax profit of 14 million pounds ($24 million), some 26 percent below market forecasts and almost half what it made the year before.

“There’s a change in emphasis, I‘m not dramatically changing things but I‘m looking at the needs of what I think is an important customer for us,” Interim Executive Chairman Godfrey Davis, a 27-year Mulberry veteran, told Reuters.

Guillon’s pursuit of more exclusive aspirations followed that of larger rivals like Kering and LVMH, respective parents to Gucci and Louis Vuitton, who have also been surprised by newcomers grabbing customers at the lower end of the market.

Brands such as Michael Kors and Tory Burch, whose bags are priced at a fraction of their more illustrious rivals, are proving increasingly popular, especially with emerging-market customers - the industry’s main growth engine.

Some 60 percent of Mulberry’s bags are priced at under 1,000 pounds, with many selling nearer to 700 pounds. Davis told Reuters they would focus on more sales at the 500 pound mark, with a new range due for stores in June.

“We see the 500 pounds to 1,000 pounds (price range) as being a very important territory and the profile of our range has got a bit skewed toward the top end of that,” Davis said.

“What I am doing is taking steps to address that.”

Davis added that a planned price increase for November had been scrapped and that as a consequence of a bigger focus on lower-priced items, margins would be squeezed, meaning a “material adverse impact on profits” in the short term.

“In my language when I use the term short term, I mean a year or two,” Davis said.

As well as lower prices, the company will slow its rate of store openings to five in 2014/15 from eight the year before.

Analysts at Barclays cut their forecast for 2015 profit before tax by 42 percent to 11 million pounds.

Guillon, who joined Mulberry in March 2012, had overseen an early rise in the company’s stock value to 1.5 billion pounds before three profit warnings in 18 months took their toll, pushing its value down to around 425 million pounds.

The company, which is 56 percent owned by Singapore billionaires Christina Ong and Ong Beng Seng, is still searching for Guillon’s replacement.

Davis would not comment as to whether Emma Hill, the creative director behind the Alexa and Del Rey bags which can sell for up to 4,500 pounds, would return to the group. Hill quit in September amid speculation she did not agree with Guillon’s strategy.

Shares in Mulberry, which are down 25 percent on a year ago, were up 1.1 percent to 717.5 pence at 1233 GMT

$1 = 0.5955 British Pounds Editing by Erica Billingham and Sofina Mirza-Reid

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